For many automotive consumers, arranging a vehicle loan, a step that traditionally occurs relatively late in the car-buying process, is occurring sooner than before, a new survey indicates.
“Consumers are doing financing earlier than before,” Angela Drake, Cox Automotive’s senior marketing research manager, tells Wards. “A few years ago, many people may have waited to do that in the F&I office.”
But online financing availability has changed that order of business in some cases.
That is a takeaway from the Cox Automotive Car Buyer Financing Journey Study. It indicates buyers who completed key financing steps online saved time and were more satisfied with the time they spent at the dealership than buyers who completed the same steps in person.
Digital auto retailing, including vehicle financing, has made dramatic strides in recent years. It has changed the way many people buy vehicles.
“The biggest benefit to (online financing) is the time savings,” Drake (pictured, left) says. “At the dealership, people want to take a test drive versus discussing financing.”
Modern digital tools allow consumers to figure out what their monthly payments would be under different scenarios. Payment shopping remains a big part of car buying for the many consumers who finance vehicles rather than pay cash for them.
According to credit tracker Experian, 85% of new vehicles and 39% of used vehicles were financed last year. Studies indicate 86% of buyers estimate their monthly payments and 76% compare interest rates.
“Most consumers definitely are payment-sensitive,” Andy Mayers (pictured, below left), a Cox Automotive associate vice president and strategist who focuses on lending, tells Wards. “But keep in mind, if you are buying a Porsche, you are buying the car and aren’t typically payment-centric.”
Although digital auto financing is gaining momentum, the survey indicates only 29% of buyers applied for financing online for their most recent vehicle purchase. But 96% of polled people say they are willing to do so.
Cox Automotive has researched the car-buying process for 12 years. This latest study on it is the first to delve into its financing aspect.
Study highlights include:
- Car buyers spend much time on financing. Nearly all (87%) car buyers explored their financing options before visiting a dealership. Over a third of the time spent in the car-shopping process is dedicated to financing activities, from researching options, to securing a loan to signing the contract.
- Seventy percent of surveyed people considered two or more lenders before choosing one. Many car buyers had an established relationship with the lender they considered first. Lenders, in turn, often go after existing customers who have taken out auto loans. “They are lower risk” on the default scale of possibilities, Mayers says.
- Buyers who were mostly digital (completing more than 51% of their car-buying journey online) are more loyal to their lenders, resulting in more direct financing and higher loan satisfaction. “I trust this lender” was the top reason cited for which one they picked.
- Vehicle affordability is paramount. Industry data indicates a median of nearly 43 weeks of income is needed to purchase the average new vehicle, and the estimated typical monthly payment increased to $691, a record high.
More than three-quarters of study respondents said they are open to buying a car completely online.
“We’ll eventually hit a point when more cars than not are bought online,” Drake says. “It’s definitely the future, and will continue to grow as more digital tools become available,”
Borrowing a term from the continued stages of autonomous-vehicle development, Mayers refers to the impending “level five” of full online car buying becoming commonplace.
“Our industry is well past wondering if consumers will ever buy a car online,” he says.
The financing study is based on an online survey of 3,050 adult consumers who financed the purchase or lease of a new (2,116) or used (934) vehicle in the past 12 months.
Steve Finlay is a retired Wards senior editor. He can be reached at [email protected].
